Ladies and gentlemen, good day and welcome to the Maruti Suzuki India Limited conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Pranav. Thank you, and over to you, sir.
Thank you, Janice. Ladies and gentlemen, good afternoon once again. May I introduce the management team from Maruti Suzuki? Today, we have with us our CFO, Mr. Ajay Seth. From marketing and sales, we have our Member Executive Board, Mr. R.S. Kalsi . Executive Director Marketing and Sales, Mr. Shashank Srivastava. From corporate, we have Executive Vice President, Corporate and Government Affairs, Mr. Rahul Bharti. General Manager, Corporate Strategy and Investor Relations, Mr. Nikhil Vyas. From finance, we have Executive Director, Mr. D.D. Goyal. Executive Vice President, Mr. Pradeep Garg and Mr. Sanjay Mathur. The con call will begin with a brief statement on the performance and outlook of business by Mr. Seth, after which we'll be happy to receive your questions. May I remind you of the Safe Harbor ?
We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces. I'd also like to inform you that the call is being recorded, and a transcript will be available at our website. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Can we collectively commit it and take it up with the government? I think this was one of the purposes by all the subgroups of SIAM. Also, I think to avoid any duplication and replication of the efforts, we also.
There is some disturbance, Pranav. Can you just get the sound muted?
Yes, it was from the line of Mr. Didi Govind.
Okay. Thank you, Pranav. Good afternoon, ladies and gentlemen. Let us start with some of the milestones which our products have achieved recently. Alto, India's number one selling car for 16 consecutive years with over 4 million proud owners and preferred choice of first-time car buyers in India, celebrated 20 years of setting unmatched industry benchmarks. Baleno, the best-selling premium hatchback since 2016, has achieved a milestone of 800,000 sales in a record time of 59 months. Vitara Brezza, India's number one compact SUV, achieved a milestone of 550,000 sales within a short span of 4.5 years. This is by far the fastest by any compact SUV. In addition to these, our contract manufacturing company, Suzuki Motor Gujarat Private Limited, or SMG, has achieved accumulated automobile production of 1 million units on 21st October 2020.
SMG becomes the fastest production site of Suzuki to reach 1 million units in just three years and nine months since starting production in February 2017. These milestones speak about the strength of the company in the Indian passenger vehicle market. Now, let us come to the quarter two. This quarter saw a good demand recovery after significantly low sales in quarter one. Though the local lockdowns during the quarter in various parts of the country affected the sales operations, the sales momentum did not slow. In addition to the past deferred demand, the sales were also driven due to increased preferences for personal mobility in the wake of the pandemic. The share of first-time buyers has increased while the share of replacement buyers has come down. Also, the demand has seen a shift towards small cars, which is evident from the change in product mix of the company.
Rural markets continue to see higher growth compared to urban markets. The festival period in Kerala and in the West was good and saw growth. The attractive vehicle financing schemes also played an important role in maintaining the sales momentum. CNG, a cleaner and affordable alternate fuel for vehicles, continued to see increased acceptance with an increase in CNG distribution network. During the quarter, the sales of CNG models posted a growth and now commands a penetration of 11.2% in overall sales of the company compared to 7.1% during the same period last year. In export markets, the demand condition improved gradually, and accordingly, the export volumes increased month on month. The deferred demand appears to be one of the main reasons for improvement in sales, and so the sustainability of demand needs to be carefully watched. During the quarter, the supply condition also improved progressively.
The company could overcome challenges and improved average throughput per day from 3,100 vehicles at the start of the quarter to nearly the rated capacity by the end of the quarter. The timely start of the second shift in Gujarat plant helped improve the supply situation. Though the local lockdown affected the supplier operations in some parts of the country, the company was able to manage and avoid disruption in the manufacturing of vehicles. As a countermeasure, during the uncertain times, the company also relaxed some component inventory norms to ensure business continuity. Cost pressures due to lower capacity utilization, increase in commodity prices, and adverse foreign exchange movements remained during the quarter. In commodities, precious metals like palladium and rhodium saw significant price increases. Due to uncertainty about the stability of demand, the necessary price increase to offset the cost impact could not be taken.
The company accelerated cost reduction efforts and reduced operational expenses in addition to reduction in material cost. Lower sales promotion coupled with aggressive cost reduction efforts helped improve the margins. Now, coming to financial results, the company sold a total of 393,130 vehicles during the quarter, higher by 16.2% compared to the same period previous year. Sales in the domestic market stood at 370,619 units, higher by 18.6%, and exports were at 22,511 units, lower by 12.7%. During the quarter, the company registered net sales of INR 176,893 million, higher by 9.7% compared to the same period previous year. The operating profit for the quarter was INR 11,677 million, a growth of 71.7% over the same period previous year on account of higher sales volume, lower sales promotion expenses, lower operating expenses, and cost reduction efforts partially offset by increase in commodity prices and adverse foreign exchange movement.
Net profit for the quarter stood at INR 13,716 million, higher by 1% compared to the same period previous year. The net profit in quarter two of the previous year, financial year 2019-2020, was higher due to mark-to-market gains on the invested surplus and lower tax provision. As a result of this, while the operating profit increased by 71.7% during the same period previous year, the net profit increased by 1%. Coming to the highlights for the first half, the company's performance needs to be seen in conjunction with COVID-19-related disruptions. The company sold a total of 469,729 vehicles during the period, lower by 36.6% compared to the same period previous year. Sales in the domestic market stood at 437,046 units, and exports were at 32,083 units. During the period, the company registered net sales of INR 213,668 million, lower by 38.7% compared to the same period previous year.
Net profit for the same period stood at INR 11,222 million, lower by 59.8% compared to the same period previous year. After quarter two, looking at good demand conditions during Navratra festival, the demand outlook for Diwali festival until December appears to be good. However, there is not sufficient visibility beyond that. There are positive factors like rural economy strength, and there is uncertainty around how the COVID scenario progresses. In several countries, the second wave of COVID has started disrupting the economy. In India, if people in movement during festival period increases, it may have some bearing on the levels of COVID infection. Overall, car demand has a strong correlation with the economic growth of the country, and so it will depend upon the Indian economic growth and job creation. On margins, the cost pressures continue to remain high, with further likely increase in commodity prices.
Finally, we would like to say that unprecedented crises call for extraordinary efforts. Your company's management will leave no stone unturned to deliver best results and maintain the safety of its people through the entire value chain and customers at the same time. We are now ready to take your questions, feedback, and any other observations that you may have. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands up while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kapil Singh from Nomura. Please go ahead.
Hi sir. Congrats on a good set of performance under very challenging conditions. Your commentary covered a lot of aspects. I'll just pick up firstly from the demand side. You mentioned that there is some deferred demand also coming back. Could you talk a little bit more about it, give some color? Are these customers who wanted to buy who are coming back, or are there a new set of customers who are looking to buy cars now because of personal mobility? How do you think this evolves going ahead? Also, if you could share rural and urban growth and the rural contribution. That would be the first question.
Yes. I would ask Shashank Srivastava to answer the question.
Thank you for the question. Regarding the first part of your question, which is the demand pattern, I think it's a mix of both. We have a lot of pent-up demand. As you know, after the hard lockdown which we saw in the last week of March, it continued through April and, in fact, part of May. April sale was zero. May was very little sale. It was, I think, only about 13,000 or so. I think there is a lot of element of pent-up demand. Also, you are right. We have observed from consumer interactions and from consumer research that a lot of consumers are now preferring personal mobility instead of using public transport or shared mobility. I think there is that element as well. We have seen a lot of buying, therefore, is for utility and functionality rather than aspiration.
That's one reason why replacement car buying has actually come down and first-time buyers have gone up. Regarding the second part, the effection, which is the rural-urban demand, yes, it does appear that the rural demand has bounced back a little better than the urban one. I think there are many reasons for it. Monsoon has been fairly widespread across the country, except a little bit in the north. It's positive about 7%. Kharif sowing is plus about 7%. Rabi crop, as you know, has been a record 6% above last year. I think, and also the negative effect of COVID sentiment is actually not so much in the rural areas. As a result, what we have seen is that the rural bounced back, especially in Q2. The rural growth was just around just about 10%.
As a result, there was an increase in the retail share of the rural areas in our portfolio to almost 41%. This was about 38.5% last year. Thank you.
Thank you, sir. Secondly, I just wanted to check on the model cycle. Is there any delay in the model cycle because of the pandemic? When should we expect the first joint product of Toyota and Maruti to get launched? Any color on that would be helpful.
Regarding the delay in model launch or the change of model launch plan, the answer is no. Because, as you know, in automobile, the cycle of introduction of new cars from the point when it is decided to have a new model is around 36-48 months. Events such as even the extreme events like the pandemic, which has been here for some time, would not significantly alter those plans. Because remember, a model is introduced not just for one year, but for a long period of time. The answer is no. There could be delays in development. However, that is something which can be made up as we go along. On your second question, which is about the joint car with the other, I'm sorry. We will not be able to give you a forward guidance on product plan as per our guidelines. Thank you.
Okay, sir. Thank you. I'll come back in the queue.
Thank you. Next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Hi sir. Can you throw light on how far are retail sales during Navratras and Dusshiras put together?
Yeah. I can give you a sense of what has happened in the Navratra period, but can't give you the entire October expectation because that's forward-looking. For the Navratra period, the deliveries which we have had is about 96,700. We have bookings of about 85,000. It's pretty good compared with last year, which the number was 76,000 deliveries.
76,000 deliveries. Okay. Okay.
Was last year.
Right. Right. For the same period, right?
Yes, sir.
Okay. Second question is to Seth, sir. Would you be able to share discount data as well as exports number?
Yeah. Today's discounts in this quarter were at 17,300 average. They were much lower than what they were last year. Last year, we were clearing the BS-VI stocks , so therefore we had higher schemes running. The discounts last year were over 25,000. This quarter, it is 17,300. That is on the discounts. On the exports, our export sales were INR 1,011 crore this quarter compared to INR 1,230 crore sales quarter last year.
Got it. Sir, just clarification on the other expenses. Were there any one-off expenses or any mark-to-market of royalty and other expenses? Because on year-over-year basis, there is a reasonable increase, especially considering our cost-cutting initiatives. That has been lower?
Today, there's always the issue of regrouping because we mentioned earlier also that the uniform freight recovery , that gets built both in sales and expenses. Expenses, sorry, it gets built in operating income and expenses. There's a difference of INR 150 crore increase because of that. INR 150 crore has got added on to the operating income, and INR 150 crore has also got added on the expenses. If you take that off, then the comparison will become more meaningful.
Right. Right. Right. Were there any mark-to-market on royalty?
No, there was no mark-to-market on royalty.
Got it. Got it. Thanks, sir. I'll come back in the queue.
Thank you. The next question is from the line of Gunjan Prithyani from JPMorgan. Please go ahead.
Yeah. Hi. Thanks for taking my question. Sir, could you share what was—you mentioned that retail growth for rural was 10%. Would it be possible for you to share what was it overall for quarter two retail growth?
It was about 4%.
Okay. Got it. Sir, the second question is on the royalty. If you can share what was the royalty percentage in this quarter?
Royalty was at 5% this quarter compared to 5.3% last year.
Okay. The last question from my side, I'll get back in the queue, is if you can talk about the inventory levels, how are they placed in the market going into the festive season? You can give some sense on that.
You mean for the industry, Gunjan?
No, no, for Maruti.
Maruti inventory.
The channel inventory.
Then you want to know about the network inventory, right?
Yes.
Network inventory for Maruti, we started off the month with about 120,000. We have to wait till the end of October to see what the inventory level would be.
Okay. Got it. Thank you so much. I'll join back in the queue.
Thank you. The next question is from Raghunandan from Emkay Global.
Hello. For the opportunity and congratulations on good set of numbers. Sir, my first question was on the diesel mix for industry and company. Can you indicate? Also, you had been evaluating re-entry into diesel segment. Any updates there? My second question, has there been any improvement in replacement and urban demand? By when do you expect things to normalize there?
First of all, your question about the diesel contribution. The industry diesel contribution dropped to 17.8% so far in this year. For Q2, it was 17% for the industry. As far as Maruti Suzuki is concerned, you know we have 0% diesel. If you look only at the competition, their competition diesel percentage was about 34%. As regards to our plan for diesel, we have already mentioned that we are watching the situation. We are collating data to see what is the consumer preference. So far, because of the convergence of the fuel prices between the petrol and the diesel, as you know, there are many states where the price of fuel of diesel and a liter of petrol is almost the same. What we have found is for hatches and sedans, there is hardly any diesel percentage now.
In fact, it is 1.5% for passenger cars. It's only in the upper SUV segment, the mid-SUV segment that there seems to be a certain amount of traction for diesel. We are watching the situation, and we will take an appropriate decision once we conclude whether in such a segment, such a diesel vehicle is required or not. What was your second question? I forgot that.
Sir, has there been any improvement on the replacement and urban demand during the festive season? By when do you expect things to normalize in these two categories?
Replacement buying actually has been coming down. While there is a good demand for pre-owned cars, the replacement demand is just around 18%. In the first half it was about 18.8% against 26.4% last year. There does seem to be a little bit of improvement in this month. I do not have the final figures for this month, which I will be able to give only in November. Also, yes, urban demand also has been a little better in this month so far.
Thank you, sir. I'll come back in the queue.
Thank you.
Thank you. The next question is from Pramod Kumar from Goldman Sachs. Please go ahead.
Yeah. Thanks a lot for the opportunity. My first question is to Shashank, sir. Shashank, it's kind of not related exactly to Maruti, but more on the rural economy and the divergent behavior this time around. Because historically, rural economy does well. All the categories of autos in rural economy tend to do well. This time around, what we've seen is significant demand for tractors and cars in the rural economy. Two-wheeler demand seems to be languishing. If you have any read there in terms of what is working for the Maruti or the passenger car customers and not for two-wheelers, if you have any color on that divergent behavior, it will be helpful.
Or also related to that is just to check, are you seeing that even within your customer profile, there's some bit of a stress on the first-time buyers in terms of people who earlier planned and inquired to buy a car and who are probably going and settling for a used car, which probably could be related to the kind of link to the consumer pyramid or the earning profile of the consumers? If you can spare some thought on that, that would be really helpful, sir.
I will take the second part of the question first. As regard the lowering of consumer demand because of the expectation of a lower income levels or a loss of income or a loss of job or whatever, yes, we do find there seems to be a telescoping of demand downwards in terms of the choice of the consumer. Therefore, what we believe is that there has been a turn from the conspicuous consumption to more conscious spending. Therefore, there is more functionality buying rather than aspirational buying. That is reflected in first-time buyer actually going up. In our portfolio, for example, and I think that's true for the industry as well, there has been a 5% jump as far as the first-time buyers are concerned from about 43.4% last year to slightly above 48% this year.
As regards to your first part of the question about the divergence in demand in different categories in rural areas, I think even for two-wheeler, so far, as far as we know, because we don't have the exact data for rural demand for two-wheeler, but I think overall the rural demand for two-wheeler also has been strong. It's only this month, I am told by, I mean, the industry observers that there seems to be a softening of demand for two-wheelers in the rural areas. So far, if you see in Q2, both passenger cars as well as two-wheelers have grown. Two-wheelers grew 7% overall, and passenger vehicles grew 17% overall for Q2. I think.
Sorry. Sorry. You're referring to the wholesales here, right?
That's right.
Oh, no, no. I was talking more about retail performances. Sorry. I mean, the retail data is something very different.
Not really, especially for passenger vehicles. As I said, I don't have the exact information on the retail sales of rural two-wheelers. What I gather from people in the industry is that except for this month, the retail demand for two-wheelers, even in the category of two-wheelers, has been pretty strong. As regards to the other question which you asked about the pre-owned cars, yes, there seems to be a huge jump as far as the pre-owned car demand is concerned. The pre-owned car actually demand, I mean, inquiries were up close to 40%. However, it has not reflected in the actual sale. One of the reasons is because there are fewer vehicles in the market for replacement.
Because people are holding on, I guess, from our research also shows that people are holding on to their vehicles for a longer time before they bring it to the market for replacement buying. That means that there is a shortage of vehicles in the market as far as pre-owned cars is concerned.
Thanks a lot. My second question is to Ajay Sir. Ajay Sir, you talked about incremental cost headwinds which you're facing in third quarter. I believe given the demand what you've had so far and the inventory situation of the dealers, is it fair to assume that the third quarter should be, from a directional perspective, a tailwind in terms of production volumes of the company?
Yeah. In terms of production volumes, we have already said that now we have been able to reach our peak capacity. Therefore, if the demand outlook continues to be good in the third quarter and we are also able to continue to produce at a pace at which we have been producing in the last couple of weeks, almost at full capacity, of course, we will be able to have a significant operating leverage in our business. I think it will all depend on the next three months' demand outlook, which so far seems to be good as Shashank Srivastava has indicated. On production also, we are now virtually working on our full capacity in both the plants, Haryana as well as Gujarat.
Finally, can you share the Gujarat sourcing? That will be the last question. Gujarat sourcing numbers for the quarter?
Gujarat production numbers?
Yeah, the sourcing. Yeah. Production or sourcing done by Maruti Suzuki from the SMG plant.
Just give us a minute. We'll just give you the numbers. Gujarat was 96,835 units that we sourced during the quarter. 96,835 units.
Thanks a lot, sir. Best of luck. Thank you.
Thank you. Next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Hi Teema. Thanks for the opportunity. Just a clarification on the previous question. You're running now at around 100% utilization rate, right?
We are close to 100%. I mean, we are now almost about between 85%-90% of our capacity. We are kind of inching up based on what the outlook for demand is and accordingly gearing up for what is required for the market.
Even when you said 120,000 units of inventory at start of October, fair to assume that that is lower than what you typically have at the start of festive?
Yeah. So yeah, inventory, etc., is something that we are slowly considering. I think one important thing that also needs to be looked at is that production will also depend on the number of working days. Unfortunately, November will be a month where you have holidays because of Diwali festival and so on. That puts a little bit of constraint in terms of the algorithm we have for those four or five days that we will have to essentially shut down because of the festival. Other than that, I think for the remaining parts of the days, we will go full hog in terms of our capacity.
Lastly, just on the model cycle, as you know, there are a lot of media articles talking about Suzuki launching, Maruti launching 5-6 SUVs in the next three years. Now, I know the company won't comment on it, but could you directionally comment a little bit about the ASPs? Between FY 2015 to 2018, we saw 8% CAGR growth in ASP, which was a key driver for your EBIT per unit. In the last two years, your ASPs have been almost flattish. Could you guide a little bit about how you see the ASPs going from a three-year time frame?
ASPs have been rising because we had a considerable mix change and the SUV segment has been growing in our portfolio. That increased the ASPs across models, which altered because our mix was pretty much constant last year. Discounts were very high last year. That was the reason why ASPs did not increase. This year, we are without diesel. Diesel was almost about INR 100,000 more than petrol. That is impacting the ASPs. Though the discount, as I mentioned to you, is about almost INR 8,000 lower than same period previous quarter. Yet the ASPs have been lower because of this impact of diesel. Also, I think in the beginning, Shashank San mentioned that there is some shift towards the hatches and smaller cars. That also has some impact on the average realization per vehicle.
Moving forward, what would be our ASP will largely depend on our new model launches and our mix, the way it will change. Based on that, it will determine whether it will go up and by how much.
Yeah. Yeah. My question was that I know Maruti will not share details on model cycle, but you guys would know what you are planning to launch in the next three years or so. Looking at that directionally, do you think would you be in a higher single-digit range or the company has been flat on ASPs for the last two years? Just trying to sort of see where in the range will you be?
I think, Vinay, let's keep it for the future because these are all interlinked things in terms of ASPs or model launches. Sooner than later, I think you will all know about our plans as and when we release them, and you will get to know. One thing we can always ensure you, as I mentioned right at the beginning in my speech, is that our endeavor is to maximize the interest of all the shareholders and ensure that on all parameters, we try and improve wherever required. I would not be able to comment on specific numbers at this point in time.
Great. Great. Thanks a lot, Mr. Seth.
Thank you. The next question is from Kumar Rajesh from BNP Paribas. Please go ahead.
Hi. Good evening. Thank you for taking my question. My first question is for Mr. Seth. You have earlier talked about volume being a key margin driver for us. We used to be at 11%-12% EBIT margin when the quarterly volume used to be around 480,000-500,000. Now, for the last year or so, our quarterly volume has been around 400,000 units. To get back to that 11%-12% EBIT margin, will you need the volume to go back to 480,000-500,000, in between those levels, or are we working on lowering our cost structure to reduce our operating leverage and get that earlier than reaching 480,000?
Operating leverage is one of the big factors for margin improvement because your fixed cost, if let's say it's constant, is only getting absorbed for the number of units you sell. If you are able to sell those extra units, it's all going on the marginal cost because your fixed cost is constant. I think that's one big driver. I said in the past, last year when I commented, I said we are losing about 4% margin on the point of operating leverage. Once that volume comes back, there can be a significant play in the margin. There are many other factors that need to be considered. There are some positive factors and some negative factors, positive being last year discounts were very high. This year, discounts are much lower than last year. That's a positive.
On the contrary, there is some pressure on the mix. The mix is a bit negative because of change in mix that we have seen. These are going away, etc. The third important factor also is the commodity prices. That has hit us very badly this year, especially the precious metals. Just to give you numbers, almost 1.2% or 1.3% margin impacted between last year and this year just on account of the commodity prices and foreign exchange is an additional impact of about 0.5%. These are some of the factors that will have the adverse impact. There are factors which will have favorable impact. When we look at our margins, we work on all these factors. Some are controllable. Some are not controllable. Then accordingly, try and build our margins.
Unfortunately, we have not been able to do any price correction for a very long period of time given the market conditions, etc. At some point in time, when we believe markets have stabilized and there is a scope, that will also help us correct our margins at that point in time.
Thank you for that. That's helpful. Sorry for asking the question again on model launch here. I'll try asking in a different way and hope to get an answer. Can you guide us on number of refreshers and new nameplates you would be targeting in near to medium term? I'm not looking for specific models, but number of refreshers and new nameplates.
Yeah. Let me try to give the same answer in a different way. Actually, as you know, we have always been very strong as far as the product portfolio is concerned. We have always been launching new models every year. Even last year, when the market was down 18%, we did launch two absolutely new models, the S-Presso in September and also the XL6. Going forward also, we have a very aggressive plan for our product portfolio. You will soon know as soon as we are ready to launch those products.
Thank you, Shashank, for that. I tried my best. I'll fall back into it.
Thank you. The next question from Amyn Pirani from CLSA. Please go ahead.
Yes. Hi. Thanks for the opportunity. I just wanted to go back to an earlier question which you answered on the other expenses. The INR 150 crore that you mentioned on the space recovery, I mean, even last year, there would have been some number. So is INR 150 crore the year-over-year change, or is it the absolute number of the other expenses?
This is the YY change. The numbers last year were 410, and this year it's 560. This one year we are mentioning the YY change, not the absolute number.
Okay. This number would keep changing in line with volume growth. Is that a correct understanding?
That's right. Therefore, one will need to regroup the numbers to understand it better in terms of how the overheads have actually moved during the period.
Okay. Okay. That's helpful. Just on the Gujarat capacity, can you confirm the timeline of the third line of 250K? Is it January of next year, or is there a change in that? Hello?
Mr. Piranni, may I please go ahead with your question?
Yeah. Sorry. On Gujarat capacity, see, requirement would all depend on what demand do we have for our products and accordingly, when do we need to actually get to a plant utilization. It will depend on that. We will closely keep monitoring the demand and then decide on when do we need to get into the third plant.
Okay. Just to clarify, as of now, only Baleno and Swift come from SMG, right? Or are there any other models?
Yeah. As of now.
Yeah. That's helpful. Okay. Okay. Thank you, sir. I'll come back to this.
Thank you. The next question from Ronak Sarda from Systematix Shares .
Yeah. Hi. Thanks for the opportunity. The first question for Ajay San. You called out commodity cost increases as a headwind. Would you be able to help us? How much of the impact has come in Q2, and what kind of increase are we seeing over the next six months?
We have mentioned to you that on commodities, there has been an impact of about 1.4% or thereabouts between quarter two of last year and quarter two of this year. If you.
Okay. So that's what's working with.
With the sales numbers, you'll get the value. That's one. Second, we are now seeing the impact on account of another commodity where we could negotiate till now on the old basis and increase, especially steel, where now all steel makers are kind of pushing for some increase on our prices. Rhodium has been a troublemaking commodity for us all throughout. We've had the rhodium prices have tripled over the last year, 3x . That is where we are very concerned because that's giving a large impact. This is largely because most of these mines are now working with very less manpower because of COVID, and therefore there's a problem of output. We believe that as and when the situation gets okay, the production gets normalized, the prices will also come back to a reasonable level.
Till then, I think we will have to live with it, and we will have to bear the increase. We see some more headwind on commodities in the third quarter, third and fourth quarter, especially because of the reasons I just mentioned, steel and precious metals.
Sure. Sure. Okay. Would you like to quantify it? I mean, could it be another 1%-1.5%, or that would be too much?
We can quantify it because it's still under negotiation. Most of these commodities are also negotiated as we arrive at a final price. Difficult at this point in time to quantify.
Sure. Sure. The second question for Shashank San. I mean, last quarter, you highlighted how the industry volumes have shifted for top 10 markets. I mean, would you have the same number for, let's say, Q2? Maybe October is still going on, but are we seeing the top 10 markets share increasing in that sense?
I can give you some sense in the top 10 cities, if that helps you.
Yeah. Sure.
In the top 10 cities, if we look at 2019-2020, the industry contribution was 36%. It was similar in the same period the previous year, which was in 2018-2019 as well. If you are now talking of, let's say, 2021 or let's say till September, then it's a little lesser. It's around 31.4%.
Okay. My point was there is Navratra being a sharp growth, almost 25%, what you highlighted. Is this the contribution from top 10 coming back in this? I mean, do the numbers reflect, or it's still stable at around 31%-32%, and it bottomed below 10%?
I will not be able to give you the October numbers because it's still going on, but I would expect to see around 32%-33%.
Okay. It is still more stable, and the other markets are contributing more. Okay. Then last, on the financing side, are we seeing easing of financing for Maruti and overall, I mean, on the industry side as well, from what it was, let's say, in the first quarter? How is the financing behaving?
Yes. It is similar. If you look at it in terms of the penetration levels, it is 80% this year. September was also around 80%. It was 80.1% last year. I think it is also reasonably stable. Now, I think the liquidity is much better, and even the interest rates have come down to about 8.4%, I think, for SBI loans. I think it is getting better, I would say. However, still, I believe it takes a little longer for loans to be disbursed, probably because banks are a bit more careful and doing their checks a little more.
Sure. Thank you, and all the best for the coming demanding period.
Thank you.
Thank you. The next question is from Chirag Shah from Edelweiss. Please go ahead.
Yeah. Thanks for the opportunity. My first question is more on housekeeping. When you refer to deliveries, it is equal to retail, right? There is no major difference between deliveries and retail sales for you.
Yeah. Actually, at the time of delivery, you need to have the registration also in most states to be in place. Therefore, there could be a small lag between retail reported and the delivery.
Just secondly, last year, the 76,000 number, how was it last? Let's see if you can just share supply. Was it flattish, or was it a big decline, or was it a growth, the 76,000 number that indicated of last year?
Last year and the year previous were similar. The previous year was around 74,800. Remember, there is a little bit of difference in the dates, and I'm referring to not the actual dates, but the dates of the Navratra period.
Yeah. Of the festive period.
1819, the Navratra period was from 10th October till 19th October. Last year, it was from 29 September to 8th October, whereas this year it was 17th October to 26th October.
Yeah. Thank you very much. Let me ask a slightly longer-term question. We are seeing probably for the first time a sharp jump for the entry-level category, and you have explained it very well. The reason for that is because never in the past have we seen that the entry-level share jump goes up versus the previous year. Now, is it a temporary phenomenon, or this could be a new normal till the income level starts reviving? How much time do you think it will take? If it's a three- to six-month phenomenon, it could take slightly longer based on your assessment.
Actually, we are not so sure because it all depends, I suppose, on the COVID situation. You are right. Over the last, if you take a long-term past, then, of course, there has been a decline in the hatch segment, and it's been coming down. However, actually, if you look at Q2 of this year as well as for this whole financial year, it has gone up. I suppose it's got to do with that shift towards more functionality buying that I referred to at the earlier part of this session, as also the telescoping of demand, which some of you have rightly pointed out.
What would change it? Is it because ultimately the replacement buyer has to come back to the market, right, or this dynamic to change?
Which buyer will come back to the market?
The replacement customer has to come back, or even the first-time buyers are in a sense downtrading because in the past, even the first-time buyers were looking to upgrade rather than just buy the base version of a car. Is it more of an income issue? Is it more of a sentimental issue? How do you look at it? In your best estimate, when things could actually turn for the industry?
Yeah. I think it's a mix of both. People are expecting lower income levels. There is also a stress on businesses. I suppose the choice of moving downwards is reflected in that buying. As also psychologically, I think consumers are now looking at avoiding public transport and shared mobility, and hence the demand for personal mobility. That is one. As regards when it would come back to replacement, now replacement buying, you are right, has come down. Remember, the first-time buyer has more or less been remarkably constant in the industry for the last 20 years. In fact, I've been observing that range of 44%-47%- 48% of first-time buyers has been there, probably because of our demographics. I think long-term, you'll still have that large percentage of first-time buyers.
Yes, there seems to be a difference between the, I mean, the switch between replacement buying and additional car buying. Right now, the additional car buying has increased, whereas replacement car buying has reduced. If you look at the long-term trend, I think the replacement buying should also come back.
The first-time buyer is basically the person who does not have any car in his name, right? It may be there in their family, maybe in somebody else's name in their family, but in his name, it is the first car. That is how you define first-time buyer?
It is an industry standard of definition. It is not Maruti's standard.
Yeah. Yeah. I mean, the percentages
which I am referring to is first car in the household. In the household. Yeah.
And just a follow-up for Ajay San. Would it directly be correct that higher the product profiling, the upgrading, better the margin profiling also, not in terms of percentage, the more Brezzas you sell versus more Altos you sell, the margin profiling will also be different for Brezzas would be a higher margin profile versus Altos? Directly, would it be a right statement?
I think we have been answering this question in virtually every con call that the margin profile of all products will vary depending on how you position them in the market. Sometimes a smaller model can give you better margin. Sometimes a bigger model can give you better margin. It all depends on how you've been able to position and how over a period the cost down has happened on a model and what is the discount profile on a model. All these factors will determine what the margins are on each model. We work on a basis of blended margin every month, and that determines how our margin trajectory is moving. The impact of mix is depending on the little shift here and there, depending on it's not only just the product. It also depends on the variant that you sell.
There are a variety of factors, just not one, which will drive the margin trajectory. For us, what is very important is that on the blended basis, it should kind of be as per our expectations. The only big change that has happened is that we moved out of diesel last year. To that extent, there will be an impact on the mix because of the shift from diesel to petrol now.
Yeah. Thank you. Just one clarification on the discount. You said it is 17,000 this year, right, around for the quarter?
17,300 for the quarter compared to about 25,000 last year. There is a difference of.
Directly, can it go down further given that demand momentum is strong, at least in the near term? Can it go down further for us?
Can we give the chance to more analysts, please? You had a good share of questions.
Yeah. Sure. Thank you. Thank you.
Thank you. The next question is from Sonal Gupta from UBS. Please go ahead.
Yeah. Hi. Good evening. Thanks for taking my question. Sir, could you tell us one, what was the Q2 retail number? Also, just, I mean, the discussion that we are having on first-time buyer share increasing and replacement sort of going down, I understand that that might be holding true for Maruti. If you look at the first-half data for the industry, we are actually seeing a share increase, especially for mid-size hatchback, I mean, SUVs, etc. I mean, would it be correct to say that at an industry level, the replacement share is going down? I mean, how would you look at that?
Yeah. For the first part of your question, for Maruti Suzuki, quarter two retails were about 320,000 against last year of 308,000. There was an up of about 4%. As regards to your question about the SUV percentage going up, it's true. SUVs have gone up. It's also because some of the new models have been introduced in the industry, and industry is also quite sensitive to the new model introduction. SUV, by the way, the trend has been for the last few years going up. In fact, it was just about 12% about five-six years back. It's now about 26% last year and about 30% this year. As regards the type of buyer which you asked, the first-time buying in the SUV segment has actually increased. About five years back or four years back, according to the NCBS data, first-time buyer in SUVs was 12%.
Additional car buying was 60%. It had gone up to 28% last year, and additional buying has come down to 42%. If you look at it the other way, for SUVs, among the first-time buyers, 7% in 2015, 2014 used to buy SUVs. Among the first-time buyers, that has increased to 13%. That has increased to 14% last year. There seems to be a traction for first-time buyer also to go into, especially the entry SUVs.
Okay. Thank you. Yes. Yes. Thank you. That's very helpful. And sir, just the other question was on, I mean, on the used car side, I mean, just wanted to get your broad thoughts on not from a COVID perspective or something, but do you think that in a way, used cars would be competing with the entry-level segment? Or, I mean, how do you look at used car in terms of the buyer profile versus, say, the entry-level buyer profile?
Yeah. I would like to clarify straight away because I think your earlier question also had a hint of that understanding, which is this is not about evaporation of demand. When we say that the demand is moving downwards, it does not mean evaporation of demand in any segment. It could actually be just what we mentioned in marketing terms, telescoping of demand, which means, for example, somebody was buying a, let's say, a large sedan. Let's say a Mercedes may go down to an Audi, an Audi guy may buy, let's say, a Camry. A Camry guy may buy a Ciaz. A Ciaz guy may buy a Dzire, and so on and so forth downwards. It does not really mean that any segment has evaporated. It is just that the demand shifts from the upper segment to the next lower segment.
That observation is actually what pertains to the next question which you asked, which is regarding the pre-owned cars competing with the entry-level car. Surely there would be customers in the entry-level cars who might be considering a lower or a more value car in terms of the pre-owned car. Similarly, pre-owned car guys might be considering a two-wheeler, for example. I think that is how the demand would shift downwards in the current scenario. On the long term, apart from the pandemic that you mentioned, that this question is not in reference to the pandemic specifically, yes, the pre-owned car demand actually has been about 1.4x-1.5x the new car demand. That, I suppose, will continue in the future as well.
Okay. Great. Thank you so much for taking my question. Thanks a lot.
Thank you. The next question is from Satyam Thakur from Credit Suisse. Please go ahead.
Hi. Good evening, team. Thank you for taking my question. Sir, I have two questions just to get a status update on the two new schemes that you had launched some time back. Firstly, on the financing, you had come up with this buy now, pay later kind of schemes. You mentioned in your opening remarks that this year, the current strength in sales also is driven by one of the factors being innovative financing schemes. Can you share what kind of offtake or adoption we have taken for this financing scheme? Also, can you just reconfirm that are we doing any subvention in the scheme or partaking any of the risks attached to this kind of a scheme?
I think from time to time, we have been floating schemes to ensure that we get good quality credit customers who may, because of the strict norms of either the banks or the NBFCs, do not qualify by a small margin. Therefore, we've been getting into those schemes with some of the banks. We've been pushing them because we've had a very good business with all of them. Our NPS virtually have been negligible as far as these banks and NBFCs have been concerned. That's one part where we work very closely with all the banks and NBFCs. The second is that some of these schemes, like the ballooning scheme, as you mentioned, is very apt in the current context where we have seen that people have cash flow problems now.
It will be much easier as things improve that they will be able to pay their EMI at a later date. They are very comfortable with these kinds of schemes. That also helps us promote our business much more by promoting these kinds of schemes. There have been a few schemes where we have virtually given a very, we have taken a very small share of risk, but that is almost negligible. We said that a very small portion of risk that we will take. I think that is also mitigated with the schemes that we run on the sales promotion side. In fact, if you ask me, there is no impact in terms of any subvention being given to the banks or the NBFCs. These schemes are more to promote our business in a much bigger way moving forward.
Sir, any rough sense you can share of how much of your financed sales is happening on these new schemes that you launched at the beginning of this fiscal?
Actually, no, because we have schemes of different regions for different models for different types of customers. All we know is that these schemes have added a good 5% or 6% up to our total volumes as far as financing is concerned. Also, I must tell you, the scheme is not just about a step-up or a balloon type of scheme. It's also about, for example, doing the financing of on-road price rather than the actual room price as earlier many banks were doing. That was the feedback we got from consumers. We are very happy that after our discussions with the banks and with our CFO, we have been able to get some really good schemes going with the banks. We are looking forward to getting more volumes from these schemes.
Okay. Thank you, sir. The second question was on the leasing plans that you have announced for cars in many of the bigger metros now. What kind of, again, offtake are we seeing for that? In these cities in which you have these monthly payment plans on which people can get these cars on lease, how much of our sales now is happening under this kind of a plan, a ballpark, if you could share something on that? Lastly, how is the accounting treatment of this just to confirm that? For you, it remains an outright sale, and the leasing partner, again, bears all the risk. Is that a safe assumption?
Yes, that is true. This is basically the subscription scheme that you are referring to. As you know, subscription schemes are of two types. One is a white plate type, and the other is a black plate type. When we launched this scheme, we did it as a pilot in two cities, Bangalore and Gurgaon. That was a white plate. Black plate, we launched in Hyderabad and Pune. Now we have extended it across the other cities. We are just about to. I think at the moment, it is just a couple of cities where we have actually launched the scheme for a very short time so far. It is in a pilot stage, actually, and now we will be expanding to the other regions. The next step, we will be doing it in 20 other cities forward. The response has been pretty good.
We have had a huge number of inquiries. I think today morning, I was looking at the figure of about 1,000+ . We are in the process of conversion because it takes a little bit of time to do the documentation and then convert it to sales. You are right, the sales will be directly to the leasing company, and that risk is not borne by us.
Okay. That's great. Sir, if you can just try one more question. On the future products on the electrification side, hybrids and EVs, will the arrangement remain the same that Suzuki basically gets the technology from Toyota, and you get the platform or the model directly from Suzuki, and you just pay the royalty? Therefore, it will remain the same kind of a royalty deal that we have with Suzuki right now? Even these future models will come on the same royalty formula, or will these need a new separate royalty agreement with Suzuki for themselves?
We have an overall understanding on royalty. Within that, whatever new agreements will be signed will be within the overall new understanding for new models. That is one. Second is there are EV and hybrid and strong hybrids and plug-in hybrids. It is a very dynamic field where technology, viability, customer segment, taxation, and government policy, almost the whole context is changing all the time. We are studying the context very carefully. We want to launch products whenever we do that should be successful and should get good volumes and customer pool. There will be several combinations. It could be from Suzuki, as you said, sometimes from outside technology also. As and when the situation evolves and we are in a position to we are closer to launching a model, we will inform.
Okay. Great. Thank you so much.
Thank you. Ladies and gentlemen, that was the last question for today. On behalf of Maruti Suzuki India Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.